Centrefund Realty Corporation Is a Growth

2000 annual report CENTREFUND centrefund realty corporation is a growth- oriented, publicly traded real estate investment company that concentrates on the ownership of neighbourhood and community food-anchored shopping centres in high-growth areas. The Company’s primary investment objective is the creation of value through long-term maximization of cash flow and capital appreciation from its growing shopping centre portfolio. This objective is achieved by proactively managing Centrefund’s existing shopping centre portfolio, by seeking appropriate, opportunistic acquisitions and by undertaking selective development activities. Centrefund is managed by experienced real estate professionals who have a significant interest in creating long- term value for all shareholders. The Company’s common shares and convertible debentures trade on The Toronto Stock Exchange. financial highlights 1 | report to shareholders 2 | operational review 5 shopping centre portfolio 10 | management’s discussion and analysis 12 management’s responsibility 22 | auditors’ report 23 consolidated financial statements 24 corporate information 43 | shareholder information 44 financial highlights (in thousands of dollars, except per share amounts) 2000 1999 1998 1997 1996 income statement Gross rental income $ 147,893 $ 136,827 $ 112,599 $ 71,798 $ 47,477 Earnings (loss) $ (15,171) $ 11,233 $ 16,662 $ 10,020 $ 8,045 Per common share $ (1.93) $ (0.17) $ 0.45 $ 0.47 $ 0.63 Funds from operations before provision for previous management’s incentive and other fees and termination of advisory services $ 43,260 $ 44,923 $ 36,589 $ 21,311 $ 14,291 Per common share $ 2.85 $ 3.10 $ 2.63 $ 1.59 $ 1.14 Per fully diluted common share $ 1.48 $ 1.57 $ 1.46 $ 1.22 $ 1.08 Funds from operations $ (6,865) $ 18,073 $ 36,589 $ 21,311 $ 14,291 Per common share $ (0.45) $ 1.25 $ 2.63 $ 1.59 $ 1.14 Per fully diluted common share $ (0.45) $ 0.77 $ 1.46 $ 1.22 $ 1.08 Dividends declared per common share $ 0.93 $ 0.89 $ 0.85 $ 0.81 $ 0.77 balance sheet To t al a s s e t s $ 1,137,516 $ 1,085,043 $ 1,008,847 $ 638,735 $ 433,677 Total liabilities $ 740,839 $ 663,505 $ 575,806 $ 422,463 $ 275,040 Shareholders’ equity $ 396,677 $ 421,538 $ 433,041 $ 216,272 $ 158,637 common shares Weighted average number outstanding 15,200,291 14,469,728 13,947,169 13,387,996 12,502,759 Outstanding at December 31 15,376,986 15,070,323 14,307,706 13,455,501 13,353,036 Funds from Operations* To t a l A s s e t s Gross Leasable Area (in millions of dollars) (in millions of dollars) (in millions of square feet) 50 1,500 15 $44.9 $43.3 40 $1,138 12 $36.6 1,200 $1,085 $1,009 10.2 10.0 9.4 30 900 9 7.5 $21.3 $639 20 600 6 5.0 $434 $14.3 10 300 3 0 0 0 9697 98 99 00 9697 98 99 00 9697 98 99 00 * before provision for previous management’s incentive and other fees in 2000 and termination of advisory services in 1999 1 report to shareholders The year 2000 was one of significant our properties and have begun the combined operation would result in a transition and considerable change. In process of repositioning the portfolio, greater realization of value from these August, the Gazit Group (“Gazit”) where needed. Our management team properties. acquired a controlling interest in values the importance of building on We are confident in our ability to face Centrefund. As a result, a new, experi- a strong foundation. We have high-qual- the challenges that lie ahead. We aim to enced management team is now in ity, well-located assets, with good ten- bring more focus to a geographically place at the Company. In conjunction ants. We have met with many of our widespread business. Our intent is to with the change, the incentive payments anchor and national tenants in an effort focus on active asset management to former management were accelerat- to improve relationships and raise while striving to increase our market ed and all of former management’s Centrefund’s profile. concentration. We are determined to incentive contracts were terminated. We believe that the Company’s settle the fair value incentive dispute Paying these amounts to companies expertise, and therefore its focus, with previous management, which is related to previous management to end should be concentrated on food- about to be arbitrated, on fair terms. We the fair value incentive agreement, while anchored shopping centres in high- are also committed to rebuilding share- painful in the short term, will better growth areas. holder and investment marketplace position the Company in the long term. In fiscal 2000, we entered into a confidence. Further, our management New management is operating the package of agreements with Equity team remains dedicated to creating Company for the benefit of long-term One, Inc., a New York Stock Exchange- value for the long term and ensuring a shareholders. Our Chairman and I have listed REIT, in which Gazit is the largest strong and vibrant future. a substantial interest in Centrefund shareholder, to provide us with asset through Gazit and, as a result, I can say and property management services Financial Results with confidence that we are solidly in the United States. As previously Funds from operations for the year focused on the long-term success of the announced, we have also entered into ended December 31, 2000, before provi- Company. Our commitment to building discussions with Equity One to explore sion for previous management’s incen- strong local management and broaden- the possibility of a business combina- tive and other fees, was $43.3 million or ing relationships with tenants reflects tion between our wholly owned sub- $2.85 per common share, compared to this long-term focus. Our decision- sidiary, Centrefund Realty (U.S.) $44.9 million or $3.10 per common share making process regarding properties, Corporation (“CFUS”), and Equity One. before a provision for the termination of locations and tenants is heavily influ- While negotiations are in progress, no advisory services for the same period in enced by this orientation. Our renewed definitive agreement has been reached. 1999. On a fully diluted basis, funds emphasis on asset management aims to We believe that Centrefund’s United from operations, before the aforemen- ensure that our assets perform well over States portfolio requires an experienced tioned provisions, was $1.48 per share the longer term. local management team in order to for fiscal 2000, as compared to $1.57 per During the past several months, we grow and create value. Equity One share for 1999. have been actively evaluating our would be able to provide the appropriate In fiscal 2000, net earnings and funds assets, overseeing the management of focus and fulfill these objectives. Any from operations were reduced by 2 report to shareholders previous management’s incentive and $15.2 million, or a loss per share of $1.93, than offset by increased interest costs other fees totalling $50.1 million. In 1999, compared to net earnings of $11.2 mil- as a result of borrowings incurred to net earnings and funds from operations lion or a loss per share of $0.17 for the fund development, prior year’s property were reduced by a provision for the year ended December 31, 1999. acquisitions and payments made in 1999 termination of advisory services in the We believe that the provisions for pre- and in 2000 for the termination of amount of $26.9 million. Accordingly, vious management’s incentive and other advisory services and previous manage- funds from operations in 2000, after pre- fees, and the termination of advisory ment’s incentives and other fees. vious management’s incentive and other services resulting from the internaliza- In calculating earnings per share, fees, represented an outflow of $6.9 mil- tion of the Company’s prior management, reported earnings have been reduced by lion, or $(0.45) per share, basic and fully should be considered separately, as non- $14.2 million in 2000, as compared to diluted. This compares to funds from recurring charges, when evaluating the $13.7 million in 1999, to reflect interest operations in 1999, after the provision for Company’s financial performance. and accretion on the equity component termination of advisory services, of $18.1 Rental income increased by 6.5% of the Company’s outstanding convert- million or $1.25 per share basic and $0.77 to $92.9 million in 2000 over the prior ible debentures. fully diluted. Net loss for fiscal 2000 was year comparative period. This was more report to shareholders 3 Portfolio Positioning ment programs are currently underway the various Advisory Agreements and We strongly believe that active manage- at Northgate Mall in Edmonton, Stanley former management’s incentive plans ment of our existing portfolio, coupled Park Mall in Kitchener and Oakbrook will return to shareholders all of the with focused and disciplined acquisi- Square in North Palm Beach. future increases in value of the tion, development and redevelopment Company’s properties. activity, will allow us to grow our cash Centrefund Development Group We believe that the Company will flow and earnings per share. During fis- Centrefund Development Group (“CDG”) benefit from increased focus on proper- cal 2000, no properties were purchased. had a mixed year in 2000. On the positive ties in high-growth areas on a going-for- We view this as a short-term pause in side, centres in Pickering, Ontario ward basis. Opportunities, such as our Centrefund’s growth strategy.

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